In the second quarter of 2019, banks experienced the largest quarterly net increase in asset-based lending loan commitments and outstandings since data collection began in 2016 - $3.6B and $2.5B, respectively, according to the latest Quarterly Asset-Based Lending (ABL) Index survey from Secured Finance Network (SFNet).  Non-bank lenders reported a strong quarter, too. The association also released its business confidence index.

“The data show quarter-over-quarter growth and strong year-over-year comparisons along with perhaps the first indications of future economic stress since the inception of our Confidence Index in April 2018,” said Richard D. Gumbrecht, SFNet CEO. “Overall, though, members remain bullish on the economy and prospects for continued growth.”

SFNet data provide key business indicators for institutions involved in secured finance, which represents a half-trillion-dollar industry that provides working capital to a broad array of industries and businesses from energy and retail to construction and technology.

Banks’ net increase in loan outstandings in Q2 shows continued ABL expansion since Q2 2018. This likely indicates a greater willingness of corporate bank customers to use asset-based lending products to finance current activities or prepare for uncertain economic times, Gumbrecht said.

Non-bank lending continued unabated with commitments and outstandings both reaching a new high in 2Q 2019, and utilization rates swelling to pre-recession levels. These independents recorded quarterly net growth in commitments of $210.6M and loan outstandings at $129.8MM. Non-bank ABL portfolio quality was high with lower levels of non-accruals than in Q1.

For all lenders, 62.5% enjoyed an increase in new credit commitments versus 30.4% in Q1.

There were two weak spots noted in the data. While bank ABL loan portfolio quality remained high by most historical measures, more banks experienced greater levels of both non-accruals (35.3% versus 17.6% in Q1) and write-offs of non-performing loans. (23.5% versus 17.6% in Q1).  Even with this increase, however, non-accruals and write-offs remain at historic lows.

“Over the years we’ve witnessed ABL market resilience during times of economic uncertainty…. With an uncertain outlook, it will be interesting to see how the ABL market performs in the back half of 2019 and into 2020,” according to a summary analysis of the ABL Q2 Index.

Non-bank lenders reported a slightly more optimistic business outlook than bank lenders in Q2 in all five categories measured by the SFNet Confidence Index: economy/business conditions; portfolio performance; demand for new business; utilization; and hiring expectations. They were most positive about demand for new business, and slightly more reserved about business conditions.

Bank lenders had a moderate business outlook overall in Q2, perhaps reflecting the recent data on non-accruals and write-offs, the summary analysis noted. They were most optimistic about hiring expectations, and most reserved about portfolio quality. Compared with Q1, scores increased in two categories and declined in three.

The Quarterly Asset-Based Lending Index and Secured Lending Confidence Index are conducted for SFNet by Westat, an independent market research firm. Follow the links for details and analysis for Q2 2019.

For a broader view of ABL trends and the composition of this industry, visit SFNet’s 2019 Market Sizing and Impact Survey.

This study reported asset-based lenders in recent times have benefited from a strong economy, low default rates, an abundance of complementary capital and easing regulatory hurdles, but over the years SFNet also points out the ABL market has been resilient during times of economic uncertainty.